By Eric Jenks, Special to NEAFA
Chris Wolf, the E.V. Baker Professor of Agricultural Economics at the Dyson School of Applied Economics and Management at Cornell University spoke at the recent 2023 NEAFA Annual Meeting, held at the Albany Marriott in Albany, NY on February 8th, 2023. Wolf gave NEAFA members and attendees an update on the current 2023 United States (US) dairy situation and outlook for the upcoming year.
As many of NEAFA members are well aware, dairy prices have been volatile over the past several years. According to Wolf, the 2022 class III price averaged $20.96/cwt. “Butter supplies have been tight,” said Wolf. “With milk production going into butter, we’ve seen prices come down some small amount. The NY Mailbox price averaged approximately $25, with higher milk prices than what we’ve seen in the past. Prices nationally hit an all time high in May 2022 of $27.30.”
Overall, the milk production in the US saw a small increase year over year for 2022. “There was a .2% increase overall this year,” said Wolf. “Production dipped in the first half of the year… but as restrictions from base programs relaxed, higher prices built some momentum in the second half of the year. New York milk production saw an increase of .8%. Nationally, 40,000 milk cows were added this past year.”
When comparing US milk prices to both the European Union and New Zealand, the US is significantly higher for the past several years, though as of November 2022, prices in the EU edged out the US. “Europe’s milk production has been stagnant, and their costs have increased at the farm level,” said Wolf. “It’s fairly typical to see the lower prices from New Zealand. The products that they’re producing are mostly for export. About 90% of their milk is leaving, generally as whole and skim milk powder, which doesn’t receive the prices of other products.
At an export level, the US is competitive and growing. “There was 25% more value exported in 2022 vs 2021, which was a driving factor for the high farm milk prices,” said Wolf. “Looking forward at demand, it really comes down to consumer income and spending, both in the US and internationally. Nationally, US consumer income and spending is the focus; are we going to have a recession, how deep could it be, and what will it do to demand. Internationally, it’s largely about China, though we hope exports to Mexico, South Korea, Japan, etc., keep doing well as well.”
Wolf shifted his talk at this point to deal with the economy. “Interest rates, the federal funds rate, increased seven times in 2022,” said Wolf. “New loans have significantly higher rates now, so anyone that is looking for an operating loan, housing, land, etc., and hasn’t already locked in a rate can expect to pay more. Looking at unemployment, it’s a little misleading to say that we’re at the lowest level in 50 years. The US is currently at 60.2% employed, which is lower than before the pandemic. However, unemployment only counts those that are looking for employment. There was a large number of people that left the workforce due to Covid-19, and decided not to come back. We’re still facing inflation rates that are higher than desired. We’re quite a ways away from 2.5%. Any forecast that says interest rates drop by the end of 2023 are unrealistic currently. Wage growth however, continues to be strong”
Looking towards crops and weather implications, 2023 is likely to be the third consecutive year that we have a La Nina weather pattern. “This is the colder counterpart of El Nino, affects crops and pasture around the globe. In California for example, snow pack has lowered the drought conditions that we’ve seen there. We’re expecting to see dry to almost drought conditions in Brazil, Argentina, Texas/Central Plains, Africa, and New Zealand. We’re expecting a colder and stormier Northern US as well, with more Atlantic hurricanes. Australia and Southeastern Asia will likely have more precipitation than normal.” Because of this, Wolf predicts that New Zealand milk production will be “flat to slightly lower, due to La Nina and high input costs. The drought seen in the EU in 2022 forecasts a drop below 20 million head in 2023. This will lead to a continued decrease in milk production and deliveries for factory use, despite higher farm gate milk prices. In the US, milk production for 2023 is expected to increase by 0.3 billion pounds, with higher than expected cow numbers, and slightly faster growth of yield per cow.” According to Wolf, expect US dairy policy to be driven by the Farm Bill, federal milk marketing orders, as well as environmental concerns, labor, energy, and trade.